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FCA consults on widening access to the FOS for small businesses

The Financial Conduct Authority (FCA) has launched a consultation on plans to give more small businesses access to the Financial Ombudsman Service (the Ombudsman).

This follows a review of the protections available to small and medium sized enterprises (SMEs) as users of financial services.

The FCA said at the moment only individual consumers and around 5.5m micro-enterprises (the smallest type of business) can access the Ombudsman if they have a dispute with a financial services firm.

Businesses that cannot access the Ombudsman would need to take the firm to court. However, the FCA believes that many smaller businesses within this group struggle to do so in practice.

Under the changes proposed by the FCA, approximately 160,000 additional SMEs, charities and trusts would be able to refer complaints to the Ombudsman. This would be done by changing the eligibility criteria to access the Ombudsman, so businesses with fewer than 50 employees, annual turnover below £6.5m and an annual balance sheet (i.e. gross assets) below £5m would become eligible.

As long as a complainant is eligible, the Ombudsman can consider complaints about any regulated activity; it can also consider complaints about some unregulated activities, such as, lending to companies or the activities of business turnaround units.

The FCA also proposed to extend eligibility to personal guarantors of corporate loans, provided the borrowing business also meets the eligibility criteria.

The consultation comes off the back of the widely-publicised saga in the mainstream and trade press concerning RBS and its Global Restructuring Group, wherein it was alleged that RBS deliberately mistreated its SME business customers.

Andrew Bailey, chief executive at the FCA, said: “It is important for everyone, including financial services firms, that there is an effective dispute resolution mechanism for businesses. Our evidence suggests some small businesses currently find it hard to achieve a fair outcome in disputes with financial services firms because court action is not a realistic option for them. We have considered what could be done within our powers and the remit of the Financial Ombudsman Service to improve this situation and are proposing to expand access to the Ombudsman.”

The FCA proposals focus on the Financial Ombudsman Service because of its expertise in the financial services sector and the FCA’s statutory role in relation to it. More material changes, such as changing the basis for the way the Ombudsman makes decisions to enable it to deal with significantly higher value disputes, would require legislation, which only the Government can introduce.

The FCA is asking for responses to the consultation by 22 April 2018 and intends to publish a Policy Statement making final rules in summer 2018.